Category: Federal Retirement NEWS

Federal Retirement NEWS

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EPA Offering Buyouts to Reduce Personnel

It seems that many agencies are accepting president Trump’s idea of reducing the number of federal employees and the EPA Offering Buyouts is proof positive that Trump’s vision of a smaller government is becoming a reality. The Environmental Protection Agency has recently initiated steps to buy out certain personnel. The EPA has decided not to hire more workers unless it becomes necessary. It is believed that the agency may offer voluntary retirement as well. The impact of these changes on retirement benefits and federal retirement can just be guessed right now because no one knows the exact impact.

EPA Offering Buyouts
The EPA has begun offering buyouts to reduce the number of Agency employees

How the EPA Offering Buyouts Will Impact the Agency

The EPA has begun offering buyouts to reduce the number of federal employees in the Agency. The Agency has about 15,000 employees at the moment. This decision was probably taken because of an executive order by President Trump that was released last month and talked about streamlining agencies through the federal government.

How was the Message of Reducing Federal Employees at EPA Conveyed?

The message of reducing federal employees was conveyed via a letter sent by the Acting Deputy Director of EPA, Mike Flynn. This letter was sent to all the regional administrators. The content of this letter stated that the White House had asked federal government agencies to start taking immediate actions that are aimed at reducing the workforce.

The letter further stated that as per the said guidance, the EPA offering buyouts to start an early buyout or early out program. Flynn also mentioned that the goal was to complete the program by the end of the year.

No Hiring

Flynn also mentioned that though the governmentwide hiring freeze has been lifted, new recruitments at the EPA will not be encouraged. The resource situation of the agency is such that it has to opt to stay away from external hiring.  This hiring freeze is not aimed at restricting recruitment for all the positions as there can be limited exceptions that are permitted on a case-by-case basis.

Setting of a Trend

Though the memo has minimal details about the agency’s plan to reduce the number of federal employees, it can be probably one of the several plans that will be submitted by various agencies.

Targeted Approach

It is also a fact that EPA has been a central target of the Trump administration as the President of the country, Donald Trump had earlier promised that he would reduce the agency to tidbits. The budget he has proposed would slash the funding of the agency by 30 percent and cut around 3200 federal employees. It will also obliterate funding for Superfund cleanups, climate change research and scrap over 50 programs. The efforts being made towards improving the energy efficiency, cleaning up the great lakes and funding infrastructure projects in the Native American communities are among the scrapped plans.

Understanding the Buyout

Those of you who don’t fully understand what the EPA Offering Buyouts will mean to federal employees must know that buyout is also known as a voluntary separation incentive payment. It is a cash payment that is made to a federal worker to tempt him or her to leave voluntarily. The maximum amount of money that can be offered per person is $25,000. This payment is taxable which means that the take-home value is reduced by a few thousand dollars at least.

Federal workers who are selecting this option must leave by a specified date, and they are not allowed to return to federal employment within five years unless they manage to repay the entire pretax buyout amount.

Is Early Retirement Offers on EPA Agenda?

In most cases, the buyouts are coupled with early retirement offers, but in the case of EPA, it is not clear whether they are on the agenda or not. For those of you who don’t know, Voluntary Early Retirement Authority lets federal employees retire before they reach the standard combinations of years of service and age.

The two most vital federal retirement systems are Federal Employees Retirement System and Civil Service Retirement System. The latter applies to people who were hired before 1984 which consists of less than 10 percent of the workforce. These people are now older and closer to retirement on an average.

Early retirement offers allow employees in either of the two systems to retire at any age with 25 years of service or age 50 with 20 years or service. It is potentially subject to a reduction in one’s retirement benefits.

Why are Layoffs Unpopular?

Laying off the federal workers or Reduction in Workforce is not preferred by federal agencies because it requires a tedious, expensive and disruptive process. RIFs have been out of trend as Agencies have not used them for decades and they try to avoid them. Agencies prefer other methods like cutting down the travel and other expenses as well as cutting down the feds via attrition.

Conclusion:

Federal employees have been under the scanner since President Trump took over. The attempts to reduce the number of feds have been initiated at EPA by offering buyouts. The agency may also offer early retirement options which may badly impact retirement benefits and federal retirement.

Less Strict Thrift Savings Plan Rules Encourage Transfers

Thrift Savings Plan or TSP has always been a great tool for increasing federal employee federal retirement benefits. But many people prefer to transfer their funds out of the plan and shift them to other qualified plans or IRAs. But a new legislation has been introduced recently that could encourage federal employees to keep their savings in TSP.

thrift savings plan tsp

Details of Legislation Suggest Lawmakers Believe Current Thrift Savings Plan Rules Encourage Transfers

U.S. Sen. Rob Portman (R-OH) believes the current TSP platform encourages Thrift Savings Plan participants to transfer their retirement savings.  The recent legislation he proposed is aimed at stopping feds from transferring the savings to other retirement benefits accounts.

How Much Money is Shifted from Thrift Savings Plan or TSP Every Year?

If one needs to know how much money is shifted from Thrift Savings Plan or TSP every year, you should know that about $9 billion is transferred from TSP retirement account each year.  The TSP is, what is called, a defined-contribution plan, similar to 401(k) plans offered in the private sector.  Federal employees can access similar retirement benefits by rolling over their TSP funds into a 401(k) of a future employer or an IRA when they retire or as they reach TSP minimum age requirements for an in-service distribution.

Why Easing of Thrift Savings Plan or TSP Rules is Necessary?

Senator Portman believes there is a need to ease the Thrift Savings Plan or TSP rules as a recent survey revealed that the strict withdrawal rules of Thrift Savings Plan or TSP are the main reason why federal employees are switching to outside retirement accounts.  This transfer happens despite the TSP having relatively low fees.

The TSP Modernization Act

Portman’s legislation, the TSP Modernization Act will change the current rules which restrict employees separating from the federal workforce to only two post-separation withdrawals. It would let multiple post-separation withdrawals so that the feds can meet individual needs over time.

While introducing the bill, Portman stated that TSP had played an instrumental role in assisting federal employees to maximize their retirement security and to mark the 30th anniversary of this vital savings vehicle, this bills takes several important steps to modernize the system so that it continues to benefit them in the future as well. He also urged his Senate colleagues to support the bipartisan legislation.

The Benefits

There are multiple benefits of the bill. Primarily, the bill would allow multiple Age-based withdrawals for the current federal employees who are older than 59.5. Secondly, it would encourage TSP plan participation by allowing quarterly or annual payments. It will also permit periodic withdrawals that can be changed anytime during a year.

Supporters’ Speak

U.S. Sen. Tom Carper (D-RI) was the one who introduced the TSP Modernization Act along with Portman. He also mentioned the benefits offered by the bill. He said that making smart choices to prepare for retirement can be a difficult task, but every person deserves to have the financial stability when their career is at an end.

Carper also stated that Thrift Savings Plan or TSP is a useful tool and the hardworking federal employees depend on it while they plan their futures. But there is a need to make it work better for the users. He was pleased to have worked with Senator Portman on a bipartisan effort with an aim to do just that.

Greg Long who serves as the Executive Director of the Federal Retirement Thrift Investment Board also shared his views on the matter by stating that the efforts of Senators Portman and Carper are appreciative. He added that the enactment of said legislation would improve the ability of TSP participants to access their retirement savings in a responsible manner.

Conclusion

It is quite evident that the legislation that plans to ease the Thrift Savings Plan or TSP rules would make things easier for the federal employees who find it hard to withdraw their federal retirement benefits swiftly and are forced to switch to other and more expensive retirement benefits accounts.

Federal Employee Benefits in Government Shutdown?

Lawmakers are on the brink of deciding whether they would approve a spending measure to avert a government shutdown or let it happen. If the shutdown does take place, federal employees’ benefits would take a hit. Apart from the retirement benefits, all other income sources may get restricted or even stopped for a particular timeframe. Here we try to explain what will happen to which federal employee benefits if the government shuts down so that the federal employees and retirees can do their financial planning for upcoming months in advance.

 

federal employee benefits during government shutdown
What will happen to federal employee benefits during a government shutdown?

How Federal Employee Benefits Are Impacted in a Government Shutdown?

Before we talk about the impact of government shutdown on federal employees’ benefits, let’s have a look at the current situation. The lawmakers must approve a spending measure because if they don’t, the government shutdown will begin on April 29, 2017. It is not clear whether the White House and Congress can come to an agreement on a continuing resolution to fund the government in a timely manner or if the lawmakers would allow appropriations to lapse.

Impact on Federal Employees’ Benefits

What is the impact on Federal Employee Benefits during a government shutdown?

Salaries of Federal Employees: Employees who are deemed essential or are exempt from the shutdown need to be paid by the agencies but the money won’t arrive until the government reopens. There is no guarantee that Furloughed employees will get compensated when the shutdown ends. But Congress has traditionally issued back pay. Sen. Ben Cardin, D-Md. has already introduced a legislation to make sure that all the federal employees are paid swiftly if the agencies close or Congress misses the deadline.

Bonus Situation: Though agencies can offer performance bonuses, they would not be paid until the government is reopened.

Unemployment: Furloughed employees that are eligible for unemployment compensation in some states may get it but they may need to return the money when Congress approves their back pay (it happened in 2013)

Healthcare: Federal workers will be covered by Federal Employee Health Benefits Program even if a shutdown takes place. Premiums will accrue during the shutdown period and will be deducted when the employees get a paycheck post the shutdown. When the government is closed, feds won’t be able to cancel the coverage. In cases of Federal Employees Dental and Vision Insurance Programs, if employees get furloughed for two successive pay periods, they will be billed through an email in order to maintain coverage.

Retirement Benefits: Retirees in the Federal Employees Retirement System and Civil Service Retirement System will get the deserved retirement benefits even if the government closes. People who are enrolled in the Thrift Savings Plan will not be able to contribute to the relevant accounts until the pay resumes post-shutdown.

Leaves: If the government closes down, the workers won’t be able to use paid leaves in place of unpaid furloughs. Even sick days or scheduled leave could be canceled.

Conclusion:

It is hoped that the aforementioned information would help federal employees with their financial planning. We also hope that federal employees’ benefits like the retirement benefits continue despite a government shutdown as it will help retirees to not be badly impacted by the situation.

What To Do With Your Qualified Plan (TSP)

Some of the Qualified Plans that offered to retirement savers force you to do the distribution if it is below the certain limit when you leave service.  These same Qualified Plans may offer you the chance to cash out the balance, but distributions will be taxed in most cases and possibly subjected to the 10% IRS penalty for early withdrawal. This is not the best option to consider.  If you decide to go ahead with the next employer, then there can be multiple choices to make with your old 401(K).

qualified plan
The Thrift Savings Plan is considered a qualified plan and has similar rules to private-market 401(k)s

The key questions to consider for your old retirement qualified plan (Should You Rollover To an IRA?)

Want to stay or go?

Conducting the rollover to another Qualified Plan may be the best thing to do. On the other hand, some Qualified Plans are not entitled to deliver the withdrawals funds like nongovernmental 457 investment plans. Keeping the records of these funds for directing the balance to your best investments plans may be something that you become responsible for, vs. asking your employers to do all the work for you.

Expenses to consider in your Qualified Plan

According to recently released data over the last two to three decades, the overall costs for the qualified plans have decreased consistently.  With additional fee disclosure requirements along with more competition, participants in these qualified plans have been able to secure access to retirement vehicles with a smaller overall cost than what may have been charged to them.  Apart from that, qualified plans like the Thrift savings plan (TSP), are available with the help of federal government employment matching certain employee contributions.

Qualified Plan Investment Options

Given the wide variety of qualified plan investment options that could exist, many plan sponsors offer “Target Date” funds by default. Along with this, your employer is likely to give you access to US large company related stock fund, US small company related stock fund, all in one fund, international stock fund and short-term bond in the minimum choices of a client’s retirement plan. The thrift savings plan withdrawals options provide you the ability to take advantage of the various funds within the TSP while also offering you the ability to roll over your TSP to another qualified plan or an IRA.

Distribution options

Most of the qualified plans today permit the distributions options for you starting in the year you turn age 59.5 years old, matching distribution options of IRAs. IRA’s are also complicated in its details or required substantially equal periodic payments. For early retirees, the odd duck 457 retirement plans can be a great source of funds that may permit distributions before the age of 55.

Leaving your retirement plan

If you decide to leave your retirement plan of old scenario after considering the above factors, then one such easy choice that you can choose by being a rollover could be to consider the retirement plan of the new employer. Apart from that, another option is to consider the traditional IRA approach and other tsp considerations that can deliver the best retirement plan for your unique circumstances.

 

Count On The Thrift Savings Plan For Your Future

The Federal Employee retirement system designed a retirement savings plan known as Thrift Savings Plan or the TSP. The TSP is available to all current as well as retired federal employees who were engaged in the federal civil service. The TSP is a defined contribution plan that has been designed to give same retirement savings to federal employees as are offered to private sector workers who enjoy the benefits of a 401(k). Federal Employees are eligible to make contributions through paycheck deductions, employer matching and rollovers from an existing defined contribution plan or eligible IRA.

thrift savings plan tsp

  • Eligibility for the TSP:-

Thrift Savings Plan involves the participation of the federal civilian employees and members of the uniformed services. To become eligible to receive matching contributions, uniformed service federal employees need to agree to serve on active duty for at least six years.

  • Benefits of the TSP:-

One of the primary benefits of the TSP is how contributions to the TSP are taxed.  Contributions to the Traditional TSP (Roth TSP contributions are handled differently) are made “before tax.” This helps in reducing your reportable income by the amount of the contribution that you make.  An additional benefit of the tax deferral is that earnings are also not taxed in the year they were created, but rather postponed until the employee begins to withdrawal the money. They are meant for allowing compound interest on the earnings.

According to the Thrift savings plan distribution rules, the tax bite is deferred until you start withdrawing funds from the plan. As per the TSP considerations, the federal employees are seen to transfer an approximate amount of $ 9 billion from the retirement accounts each year. These are regarded as defined contribution plans that offer access to the similar kinds of retirement benefits to the federal employees as the private sector employees receive along 401 (k) plans.

  • How TSP works with FERS:-

Among the civilian participants, the Federal Employee Retirement System, commonly abbreviated as FERS, employees are entitled to receive employer contributions to their TSP and FERS Annuity.   As an FERS employee, the agency employer makes two different kinds of contributions to the account as a part of the FERS benefits. Just like other defined contribution plans, the employees need to bear investment risks for his account balance as well as the account concerning determining the performance and contributions of the investments with various TSP considerations. To participate in a TSP plan, you will select investments that you believe are best for your situation and that suit your financial profile.

However, the TSP modernization act is altered to change the current rules that have been restricting employees from the federal workforce to avail post-separation withdrawals.

Conclusion –

It all starts with a great plan if you want to set yourself up for a retirement that matches your income needs.  The Thrift Savings Plan can work amazingly well in this context.

Relaxing TSP Withdrawal Rules

Legislation Relaxing TSP Withdrawal Rules, which could impact every federal employees has been proposed.  Bill S.873 under the TSP modernization Act (Senators Rob Portman and Tom Carper) on April 6th has been designed to simplify TSP withdrawals.

Relaxing TSP Withdrawal Rules
Image Credits

The Latest Changes and Relaxing TSP Withdrawal Rules

According to a press release regarding this, Senators Carper and Portman introduced this legislation Relaxing TSP Withdrawal Rules. An article discussing these changes in the Thrift Savings Plan had been published earlier in the TSP investment report of FEDweek. The Thrift Board announced two years ago that it was planning to give some relaxation to federal employees for withdrawing the money by making the restrictions more flexible. Attempting to encourage participants to leave their retirement assets in the TSP upon retirement appears to be the main reason behind this strategy.

New legislation allows multiple Age-based withdrawals

As per the new legislation Thrift Savings Plan participants would be allowed withdrawals on multiple age-based levels.  For employees who have reached age of 59.5 have been eligible to carry out only one age-based withdrawal up until now. The second important thing to know about this plan is that it would introduce the chance for separate participants to take multiple partial withdrawals. It will be a better idea in comparison to the current status when it allows only one partial withdrawal.

TSP introduces periodic payment rules

The third item covered under this legislation are changes in periodic payment rules. The legislation has announced monthly or quarterly types of periodic TSP withdrawals / payments. The amount can be changed anytime and participants who would be able to elect a partial withdrawal according to its comfort. Participants who are taking periodic payments would be allowed to stop payment and leave the balance in their account. These rules regarding withdrawal of payment will offer much relaxation to participants in comparison to the current ones under which they could only do periodic payment on the monthly basis; they had only one chance annually to change the amount of payment; they couldn’t stop paying until the withdrawal of the full amount of the plan.

Participants and IRA Rollovers

Participants may be happy to find out that they will be able to be more selective in their decisions regarding IRA rollovers.  All these changes in TSP seem beneficial to participants with additional questions arising from the introduction of new legislation. The first thing to be taken into consideration is whether the thrift savings plan is currently capable of handling and managing the expected additional transactions. Secondly, the increase in the expense of a plan has been estimated to be noteworthy. The larger number or withdrawal request will almost certainly add to the management expense of the TSP as a whole, which has been a major advantage of the plan.  Would TSP be able to tolerate the increase in the number of transactions? Thirdly, the financial services sector may choose to fight this legislation as it may reduce the number of IRA rollovers from the TSP.

Conclusion – The amended legislation relaxing TSP withdrawal rules appears to be good news for participants of the plan.  The reality about these changes is yet to come, however, and added costs could be the final outcome.

Social Security Funds To Invest In Equities?

The recent article in the Wall Street Journal suggesting that allowing Social Security funds to invest in equities could increase the investment returns. The article suggested that this move could improve the long-term financial outlook of the Social Security Trust Fund while reducing the need for tax increases.  The risks here are estimated to be negligible if it is done carefully and even if the future returns of the equity are turned out to be lower than the historical ones.

Social Security funds to invest in equities - tsp example
Should the Federal Government allow Social Security funds to invest in equities? Does the TSP’s success demonstrate that this could work?

Also, allowing Social Security funds to invest in equities is unlikely to disrupt the stock market as the simulations suggest that the trust funds will unlikely to hold more than 2 percent of the outstanding market cap at the last stage of the projection period. If the stock accounted for more than 40 percent of the total security assets, then we can say that the % of the trust fund would likely to increase in the stock market by 2 to 3 %. The social security with the thrift savings plan withdrawals options would not take over the stock market.

Does The Thrift Savings Plan’s Success Justify Allowing Social Security Funds To Invest In Equities?

Today the critics of the equity investment suggest that Social Security ownership of publically traded shares would could create a conflict of interest for Congress as the Federal Government would become an owner of these companies and therefore have Voting rights on how the Companies were run. But at the same time, any risk of this kind can be easily avoided. The equity investments in consideration are designed primarily to address the broad market indexes’ such as Wilshire 5000 and S&P 500. Apart from that the voting rights of trust fund shares can be handled in 3 ways: by casting votes reflecting the votes of common shareholders, by no voting at all or at last by delegating the individual portfolio managers. These are the standard practices of the federal government’s Thrift Savings Plan.

Conclusion

The equity investment today is not a silver bullet which can resolve all Social Security issues, but at the same time allowing Social Security funds to invest in equities could t the tsp considerations of yours in your packaged plan for the restoration of balance. The moral of the story is that the policy makers should include some investment assets in their equities as options so that when they implement the thrift savings plan, they will construct the comprehensive packages for the long term run balance restoration. There are many thrift savings withdrawals options are available for you to choose in terms of better investment & beneficial growth for your retirement.

Need for Better Federal Retirement Benefits Boosts Retirement Assets

It seems that Americans finally understand the value of having better federal retirement benefits savings as it would help them to pick the best date to retire and face the realities of retirement. Why? Because the U.S. based retirement assets have increased considerably in the last year. IRA and target date funds were also among the funds that saw an increase recently. Have a look at which assets grew by what number by reading all the data given below.

federal retirement benefits

Need for Having Better Federal Retirement Benefits.

Though the need to have better retirement benefits was a key factor in increasing the U.S. based retirement assets, it’s not the only reason for the increase. A bull market also played a key role in pushing the assets.

The Increase

As per the revelations made by the Investment Company Institute, U.S.-based retirement assets were USD 25.3 trillion in 2016. It saw an increase of 6 percent for the year. At the end of the year 2016, retirement assets accounted for 34 percent of all household financial assets in the country.

Talking about the 401(k) and similar plans, it can be seen that Americans held USD 7 trillion in all the employer-based DC retirement plans. Out of this, about USD 4.8 trillion were held in 401(k) plans. Assets available in individual retirement accounts came to a total of USD 7.9 trillion. It saw an increase of 1.1 percent as compared to the end of the third quarter.

In contrast, their defined benefit counterparts in government including local, state and federal government plans, held about USD 5.5 trillion in assets at the end of December. It saw a 2.4 percent increase from the end of September.

Defined benefit plans of the private sector held approximately USD 2.9 trillion in assets at the end of the fourth quarter of 2016. Annuity reserves that are outside the retirement accounts accounted for another USD 2 trillion.

Assets of Defined Contribution Plans

At the end of the fourth quarter, $550 billion was held in other DC plans of the private sector, $282 billion in 457 and $905 billion in 403b plans. About $467 billion was in the retirement system of federal employees, the thrift savings plan which raised the hope that at least federal employees would now have access to better retirement benefits.

Mutual funds amounted to $3 trillion or consisted of 63 percent of assets that are held in 401(k) plans at the end of December 2016. Equity funds were the most common type of funds held in 401(k) plans as they amounted to USD 1.8 trillion. They were followed by $835 billion in hybrid funds that include the target date funds.

Increase in Target Date Funds

The mutual fund assets of the target date funds were $887 billion. It had increased 1.5 percent in the fourth quarter and 16.3 percent for the year. Not surprisingly, retirement accounts held most of the target date mutual funds assets as 88 percent of the target-date mutual fund’s assets were held through DC plans (67 percent of the total) and IRAs (20 percent of the total) at the end of 2016.

Slight Increase in Individual Retirement Accounts

The growth in IRA assets is just 1.1 percent when compared on a quarterly basis. It held $7.9 trillion in assets at the end of 2016.  47 percent of the IRA assets or $3.7 trillion was invested in mutual funds. $2 trillion was invested in the equity funds.

Conclusion:

People who have decided to choose the best date to retire only after ensuring that they have better federal retirement benefits savings have something to cheer about. The retirement assets of the Americans have improved considerably, and this is great news for all the people planning to retire and face the realities of retirement.

Keep Your Federal Health Insurance In Retirement

Many people worry about losing their Federal Health Insurance In Retirement because they don’t have the resources to pay for all the medical bills on their own. If you are also worried about one of the most crucial federal employee resources, federal employee health benefits or FEHB health insurance, this article will attempt to guide you through your eligibility and options you have if you are ineligible for FEHB.

Federal Health Insurance In Retirement
How to keep your Federal Health Insurance In Retirement

Federal Health Insurance In Retirement and the FEHB Five-Year Rule

If you are currently enrolled in FEHB and have been enrolled in it for at least five years or from the earliest opportunity to enroll, you typically can maintain your federal health insurance in retirement. Your health insurance benefits in retirement will also remain even if you have bounced from one plan to the other. Being enrolled in some FEHB plan for a full five years before the retirement is what matters most, according to the rules.

What happens to health insurance benefits in retirement if you are not enrolled in FEHB for five years?

If you are unable to meet the requirement of being enrolled for five years, you should see if you qualify for a waiver. OPM can grant a pre-approved waiver if you are offered an early retirement offer and you have accepted it. There are still certain conditions that need to be met to be eligible for the waiver. These conditions are different for DoD and non-DoD employees. In case an early retirement offer comes your way, your agency would usually let you know whether you qualify for a pre-approved waiver or not. If the agency has not made it clear, you should ask the agency about it.

Seeking Individual Waiver

People who wish to keep health insurance benefits in retirement but haven’t got a pre-approved waiver can try their luck at getting an individual waiver from OPM. Waivers can be difficult to obtain through OPM as they will only grant you an exemption under limited circumstances.

Free Extension

A person who is not eligible to carry the FEHB coverage into retirement is given a 31-day extension of the coverage without any costs. After that period is over, you need to decide whether you wish to convert to an individual contract or you need to ask for Temporary Continuation of Coverage. In the latter option, you can keep your FEHB enrollment for a maximum of 18 months, but you will need to pay the full premium and an additional two percent to cover all the administrative costs.

Making Decisions

In case you get to enjoy health insurance benefits in retirement when you reach 65 years of age, you will become for Medicare Part A and will need to make some decisions. Firstly, you need to decide whether you need the FEHB coverage at the same level. The decision would usually depend on factors like cost and benefits of the said plan at that time and the extent to which the plan overlaps with Medicare Part A. You need to do some research before reaching any decision.

The second decision would be whether you should enroll in the Medicare part B or medical insurance. In case you are enrolled in a fee-for-service plan at that time, you need to seriously consider enrolling in the Medicare Part B because it will cover almost all of your medical expenses.

If you are enrolled in an HMO at that time, you may choose to opt for enrolling in Medicare part B, because it will cover the costs if you decide to use non-plan providers. Medicare Part B can also lower the premiums for each 12 months if you later move to a fee-for-service plan.

The last problem you need to solve is how much you need to pay for FEHB coverage post-retirement. If you are not a postal worker, you will need to pay the same premiums like you did as an employee.

Conclusion

If you are eligible, maintaining your Federal Employee Health Benefits or FEHB in retirement is an excellent idea.  There are ways to request a waiver if it is determined you are ineligible, and whatever effort you need to put forth to obtain this waiver is advisable, as maintaining your federal Health insurance in retirement (FEHB) is undoubtedly one of the more important components of your retirement well-being.

Is Auto-Enrolment Good for Financial Planning and Wellness of Civilian Employees of the US Army?

It is a general belief that auto-enrolment is a smart idea as it allows people to save more towards the retirement benefits and boosts their financial planning and wellness. But does the boost to financial planning and wellness actually occur? A study sought answers to these questions by analyzing the data of civilian employees of the US Army who have contributed to DC TSP or thrifts savings plan.  The results of the study are not as definitive as one would have expected.

financial planning

Auto Enrolment Expected To Boost Financial Planning and Wellness

Auto-enrolment to defined contributions plans began due to the Pension Protection Act which nudged the employees into DC plans. This step was taken to ensure that there was a boost in financial planning and wellness of the participants of the DC plans.

The Debt Danger

Though it is evident that auto-enrolment was initiated to ensure people benefit from better financial planning and wellness but an unpublished research paper has recently surfaced which states that it may be responsible for driving people deeper into debt. The study showed that an increase in debt payments is offsetting about 73 percent of the gains of low-income participants.

Analysis of Data

The researchers have analyzed savings data of the civilian employees of the US Army who had contributed to federal defined contribution thrift savings plan. Auto-enrolment on the set plan was associated with an increase in the wealth, but new consumer debt counterbalanced more than a third of the average gain.

The authors of the report compared more than 32,000 civilian U.S. Army employees who were hired in the year before the implementation of auto-enrollment change with nearly 27,000 employees employed in the year after. The authors also conducted a study on 2,345 employees who were hired in the month before the implementation and compared it to the 3,414 employees who were hired in the month after the change. It got similar results in both comparisons.

The Results

During a four-year period after the employees were hired, those who were auto-enrolled had an increase in the overall wealth, which increased by 5.2 percent on an average.  Wealth also rose by 13.9 percent at the 25 percentile of the income and 21.5 at the 10th percentile of income, says the study. Main reasons for the increase were employer and employee contributions. The report also mentions that auto-enrollment had no effect on 75th and 90th percentiles.

Lowering the Wealth Increase

A big blow to the financial planning and wellness benefits of auto-enrolment was that automatic enrollment increased net wealth during the same period by an average of just 3.3 percent. It demonstrated a 37 percent crowding effect. It was just 8.6 at 25th percentile which indicates 38 percent crowd out. It was also 5.8 percent at 10th percentile which shows 73 percent crowd out. There was no effect on the net wealth at 90th or 75th percentiles.

The Authors

The authors of the study were John Beshears, David Laibson and Brigitte Madrian of Harvard, William Skimmyhorn of the U.S. Military Academy and James Choi of Yale. Many authors have been studying the behavioral efforts to lift the U.S. savings rates for more than a decade.

Conclusion:

After having a look at the report regarding auto-enrolment and its effects on financial planning and wellness, it can be stated that the increase in wealth is not as high as it was assumed to be initially as debt is playing a key role here. Though auto-enrolment has boosted the retirement benefits savings of people because they are saving up more in DC plans of TSP or thrift savings plan, the boost is not as much as many people expect it to be.

Retirement Assets Reach Over $19 Trillion in 2016

Per recent data shared by the Federal Reserve, retirement assets reach over $19 trillion. This data demonstrates the seriousness that people are approaching their retirement financial planning. Have a look at the numbers and see how the assets are doing when they are classified into various categories.

Retirement Benefits

Retirement Benefits Fund Assets for DB and DC Plan Also Grew

The data shared by Federal Reserve also states that retirement fund assets for Defined Benefit Plan and Defined Contribution Plans (like 401(k)s and the Federal Government’s Thrift Savings Plan) have also grown a lot in the last year. The total assets across the public and private defined contribution (DC) and defined benefit (DB) plans grew by 8 percent. It was $17.6 trillion in 2014, and retirement assets reach over $19 trillion in 2016.

Total financial assets available in private and public DB pension plans were $12.4 billion in 2016. It has increased by 8 percent as it was just 11.5 trillion in 2014. Similarly, the total financial assets in DC plans were $6.7 trillion in 2016. It is up by 10 percent from $6.1 trillion in 2014.

Private DB pension plan assets in 2014 were $3.2 trillion. They were at $3.3 trillion in 2016 which shows an increase of 3 percent. Private DC plan assets in 2014 were $5.2 trillion, and they grew by 9.6 percent in 2016 to stand at $5.7 trillion.

Pension Funds’ Biggest Asset Class Holding

When discussing the performance of retirement benefits fund assets, it is vital to consider pension funds’ largest asset class holding. The largest asset class held by pension funds was corporate equities as it was $4.8 trillion. It is closely followed by debt securities and mutual funds which stand at $3.9 trillion for both of the asset classes. The fourth biggest holding of pension funds in 2016 was Treasury Securities that stood at $2.3 trillion.

Government’s Assets

When reviewing the performance of retirement benefits fund assets, it is essential to see how the assets of the federal government have performed. The DB plan assets of the federal government were $3.4 trillion, and DC plan assets in 2016 were much less than that as they were just $466 billion. DB plan assets of state and local governments were just $5.6 trillion in 2016 while DC plan assets of state and local governments were just $490 billion.

Looking at the Flows

Debt securities were the biggest purchase of private and public DB plans in 2016 as they were around $190 billion, followed by Treasury Securities that were $120 billion and Corporate and Foreign Bonds at $61 billion.

For all the private DC plans, the highest numbers of inflows in 2016 were to mutual funds, at $24 billion. It was followed by debt securities at $22 billion and corporate and foreign bonds at $12 billion.

For the DC plans of federal government, the biggest purchasers in 2016 were debt and treasury securities as both were at $16 billion. They were followed by assets in the Thrift Savings Plan that were about $12 billion.

The biggest purchases of local and state DC plans in 2016 were unallocated insurance contracts at $8 billion and miscellaneous assets at $7 billion.

Conclusion:

The data shared by the Federal Reserve regarding retirement benefits fund assets is a good source of information for investors who wish to understand how these large plans are investing their asset, which may lead to an understanding of how these money managers perceive the economy and the potential investment risks that lie ahead.

Federal Employees With More Than $1 million in Their TSP

More and more Federal Employees are amassing more than $1 million in their TSP or thrift savings plan account.  The reasons vary from the safety of the investment options to government contributions, to good performance. It is believed that if the funds continue to increase and people continue to invest in them steadily, the number of people who have more than $1 million will increase even further.

more than $1,000,000 in their TSP

More and more federal employees are amassing more than $1,000,000 in their TSP

How Many People Have More Than $1 million  in Their TSP?

As per reports, about 10,000 individuals have a thrift savings plan account over $1,000,000. It is also reported that about 1.4 million account holders currently have balances between USD 50,000 and USD 249,000 after an average of 18 plus years with Uncle Sam. It clearly indicates that most people have a lot of time to grow these accounts further.

In mid-December, 35,161 TSP account holders had a balance ranging from USD 750,000 to USD 999,000. The average account holder had been in the government for just more than 28 years which clearly indicates that these people grew their balances by regularly investing in S, C and I funds of thrift savings plan. These are indexes of the Large Cap (C), International Index (I) and Small Cap (S).

Earlier Investors of TSP

It is pertinent to mention that when the thrift savings plan started, the only federal employees who had million dollar accounts were typically well-to-do private sector lawyers who had turned into federal judges. People who joined the government after long and lucrative careers in the private sectors were also among first few of the thrift savings plan investors.

The Reasons Behind Attracting to TSP

Some people might wonder about why smart and rich people opted to switch their retirement savings accounts to the federal TSP. Well, there are a lot of reasons for that, number one being safety. All these reasons are explained below.

The Monitoring

It is a fact that as an investment, TSP is the most monitored Qualified plan available. Participants range from retired and active letter carriers to FBI agents, CIA officers to NASA agents and even the members of the Senate and House.

Unique Treasury-Securities

People also love investing in the thrift savings plan as they get unique treasury-securities, G-fund which is not available to any other retail investors.

Lowest Administrative Fees

Most Americans also like investing in the thrift savings plan because it has some of the lowest administrative fees in the business.

Recent Performance

It is expected that the number of federal employees who have more than $1 million in their TSP will continue to grow in the future as well because thrift savings plan has ended 2016 on a positive note and because of the age of the average employee being in some of their prime savings years.

Conclusion:

It can be concluded that the report which says more federal employees with more than $1 million in their TSP is good news for all the investors.  It clearly indicates that investors who opt for consistent savings efforts can also earn a lot of money over time if they stick to a plan. It is also quite clear that the recent performance of the TSP funds will lure more investors to it in 2017 which will probably increase the number of millionaire investors in the Federal government.

Will Congress Approve Federal Employee Retirement Benefit Increases?

A congressman is attempting to create federal retirement benefit increases. The proposal offers the new calculation using CPI-E vs. CPI-W. Using CPI- U instead of CPI-W is also being proposed. It is not clear whether the Congress would even nod to change the way cost of living adjustments are being calculated. Even experts are hesitant about speculating on which way the wind will sway. If the method of calculation is changed, many people will need the help of someone who serves as a retirement guide.

Retirement Benefit Increases

Request for Change in Calculating Retirement Benefit Increases

The request for making a change in calculating retirement benefit increases was proposed by Congressman John Garamendi (D-Modesto, CA).  Garamendi recently introduced the CPI-E Act of 2017 (H.R. 1251), a bill that would require the Cost of Living Adjustment (COLA) methodology to make use of CPI-E instead of the CPI-W.  CPI-W is currently being used to calculate changes in retiree benefits for Social Security recipients and federal annuities provided under the Federal Employees Retirement System (FERS) and the Civil Service Retirement System (CSRS).

NARFE’s Opinion

Talking about the proposed change in calculating retirement benefit increases, the president of National Active and Retired Federal Employees Association, Richard Thissen stated that the fact that it is already not being done is shocking. The COLAs are based on the costs experienced by clerical workers and urban wage earners rather than the costs experienced by elderly individuals.

Background

It should be mentioned here that the retirees started getting calculating retirement benefits increase or Cost of Living Adjustments (COLAs), in 1975 only. Congress approved the automatic cost-of-living adjustments as part of 1972 Social Security Amendments. At that time only one Consumer Price Index was available, it was CPI-W. Before 1975, the retirement benefits were increased only when the Congress enacted a special legislation.

Experimental Price Index for the Elderly

The Bureau of Labor Statistics has expanded the number of CPIs since the 1970s, and it has created an experimental inflation measure which is known as Experimental Price Index for the Elderly. It is the responsibility of the Bureau of Labor Statistics to produce the Consumer Price Index.

CPI-W, on the other hand, measures the changes in prices for a market basket of services and goods bought by a household where more than half of the income of the household must come from wage or clerical occupations. The CPI-W population represents about 28 percent of the total U.S. population.

Present Scenario

At present, the experimental CPI-E is calculated by using the households that include at least one reference person or spouse who is at least 62 years of age. It represents about 19 percent of the current CPI sample.

BLS has found that around four in seven major expenditure groups that are being measured by CPI older households are assigning a larger portion of their total expenditures to some categories that are rising rapidly like the medical care costs.

The Costs Involved

If the Congress approves a change on calculating retirement benefits increases and switches to CPI-E, it would cost several million dollars. The index sample will need to be expanded so that it becomes statistically defensible. BLS will also need to put greater resources into collecting information regarding senior discounts that have the potential to affect the final pricing of various goods and services.

Chained Consumer Price Index for All Urban Consumers

A few members of the Congress are also considering switching to Chained Consumer Price Index for All Urban Consumers (C-CPI-U) from CPI-W. It is believed that (C-CPI-U) will capture consumer expenditure substitutions so as to reflect true cost-of-living changes of the customers. On the BLS website, an example of consumer preferences between pork and beef can be found.

Beef and pork are two separate CPI item categories. If the price of pork increases and the price of beef do not, consumers might switch to beef from pork. The C-CPI-U is designed in such a manner that it accounts for this kind of consumer substitution between different CPI item categories. In this example, the C-CPI-U will increase but not by as much as the index that was based on the fixed purchase patterns.

Thus, the C-CPI-U is proven to increase at a slower rate than the CPI-E or CPI-W over the last decade which would save government’s money by lowering the amount by which retiree benefits increase.

An act known as the CPI-E Act of 2015 was similar to the bill that has been introduced by Congressman Garamendi. It died in a Subcommittee of the House during November 2015.

Conclusion:

Though the efforts made by Congressman Garamendi to change retirement benefit increases are calculated in the future to have got some attention, no one can say for sure whether the proposed changes will be approved by the Congress this year, or ever. If the changes are approved, the process of calculating cost of living adjustments will change, and most retired people would need the advice of a federal retirement guide for managing their finances well.

Firing Federal Employees Becomes Easy

Most federal employees seek to know the best date to retire so that they can do the financial planning well. But it seems that they will need to plan ahead as firing federal employees has become easy thanks to a newly approved legislation. The employees of the Veterans Affairs Department are the ones being more affected by this change. Democrats tried very hard to halt this bill which they think is unfairly targeting the rank-and-file employees.

firing federal employeesit seems that they will need to plan ahead as firing federal employees has become easy thanks to a newly approved legislation.

Legislation that Makes Firing Federal Employees Easy

The legislation that makes firing federal employees easy was approved by a House committee. It will now hasten the disciplinary process going on at the Veterans Affairs Department. This legislation was pushed back by the Democrats, and they opined that this legislation is unfairly targeting all the rank-and-file employees.

Republicans vs. Democrats

This legislation is the latest effort made by Republicans to make firing federal employees easy and boost the accountability at the VA. The Republicans have tried to expedite the firings and suspensions at the department since an initial reform effort initiated in the year 2014 ran into legal trouble. Democrats, on the other hand, insisted that they were for getting rid of problem employees in VA, but they thought that the Republicans led plan would not address the root of the issue in a proper manner.

Hurting a Few Employees

The author of VA Accountability First Act and the Chairman of the House Veterans Affairs Committee, Rep. Phil Roe, R-Tenn. started off the markup by addressing the expected criticisms. He stated that the measure was not an attack on the rights of the workers, but it was an effort to grant the request made by VA Secretary David Shulkin. Shulkin had sought to dismiss employees when he comes across very few bad employees.

Roe stated that he did not agree with the argument that the bill would impact recruiting and retention in a negative manner as bad employees usually hurt the morale of the rest of the workforce. While noting a common refrain from detractors of firing reform, Roe mentioned that the measure would not hurt a large number of veterans who work at the department.

Roe is a veteran himself, and he opined that veterans don’t agree to serve in any role because they put special employee protections ahead of a mission as the mission always comes first.

Eliminating the Grievance Process

The main sticking point of the legislation that makes firing federal employees easy was the elimination of the union grievance process that is available to all the represented employees as a way to appeal adverse personnel actions. Roe highlighted that the unions represent 76 percent of the VA workforce and his intention was to reform the process for more than just a quarter of employees of the department. Roe added that leaving the grievance process open would create a gigantic loophole for increased accountability. He also pointed out that the completion of the grievance process takes up to 350 days to complete.

Another ranking member of the committee, Rep. Tim Walz, D-Minn, stated that VA must follow the laws that were put in place after collective bargaining agreements.

The Amendments

Democrats had proposed some amendments to reform the legislation that makes firing federal employees easy, but all those efforts failed. Walz has cautioned that the latest accountability legislation would fail to pass in the Senate. He even offered a compromise bill that was championed in the Senate Veterans Affairs Committee last year and had got bipartisan support. Among the other amendments that failed, there was a plan from Rep. Mark Takano, D-Calif. He proposed allowing the VA Secretary to suspend troublesome employees without pay while an investigation into alleged misconduct was done.

Scandals of the Past

Roe did not hesitate in pointing out that anyone who was standing against this bill that makes firing federal employees easy was supporting an antiquated system that was mainly responsible for the scandals that occurred in the past.

The Expedited Removal Authority

Roe’s bill would give expedited removal authority to the VA secretary which means that any employee fired by the Secretary would be out of the job and off the rolls of the department that day. Any employee who is facing removal or suspension of at least 14 days or a demotion would get a notice of 10 days, and the secretary would have five days to rebut any response an employee comes up with during that time. Those employees would maintain appeal rights to the U.S. Court of Federal Claims and the Merit Systems Protection Board.

Reduced Pensions

Apart from making firing federal employees easier, this bill would also allow VA to reduce the pensions of employees if the employee is convicted of a felony that affected the job and it will also let VA recoup bonuses and relocation expenses in a few cases. Federal employees facing these kinds of penalties would also be entitled to an appeal so that they can retire when it is the best date to retire for them, and they can meet their financial planning goals rather than being chucked out unceremoniously.

1 Billion USD Paid to People without Social Security Numbers

A new audit has highlighted that $1 billion was paid to people without social security numbers. This is amongst the most shocking social security news that has come out in a long time. Lack of proper records is said to be the key reason behind the mistake, and the Social Security Administration (SSA) is seen defending itself post the release of this report.

social security numbers $1Billion given away to recipients without social security numbers

Report Says 1 Billion USD Paid to People without Social Security Numbers

The report which states $1 Billion was given to people without social security numbers was compiled during a fresh audit. The inspector general of the agency found many errors in the documentation done by the government for representative payees. The representative payees are also known as individuals who get disability or retirement payments on behalf of a person who is not able to manage the benefits themselves.

The key finding of the audit was that there were thousands of cases where there were no social security numbers present on file. This report was released just a few days back. It states that the social security administration paid $1 billion to about 22,000 representative payees without an SSN. It also highlighted that SSA has failed to follow its policy to retain the paper application.

Future Trend

The Inspector General also stated that if the SSA fails to take a corrective action in this regard, it will continue to pay around $182.5 million worth of benefits annually to the representative payees without any social security numbers or those representatives that lack a paper application regarding their selection.

The Past

In the past, the agency has paid USD 853.1 million in benefits since 2004 to individuals who were terminated as representative payees by the agency. According to the Inspector General, the errors occurred mainly because SSA failed to keep paper applications that supported an individual’s case to receive benefits on other person’s behalf. The agency also failed to update its system in the cases where the status was terminated.

More Data

Further results of the audit state that just 6 percent of representative payees had properly recorded social security numbers in a sample of 100 beneficiaries taken during the audit. It was also revealed that 17 percent of the representatives’ payees in the sample lack a record of any social security numbers as they were noncitizens who were undocumented. It clearly proves that government benefits deserved by American citizens are going to people who are in this country illegally via the current representative payee system, and in fact, that undocumented aliens without SSNs are receiving benefits from the government when acting as representatives for their minor children.

The Response

The social security administration responded to the audit by saying that it moved to a new Electronic Representative Payee System only last year and the transfer of information of representative payee may have resulted in the applications showing as not selected or terminated. It is clear from this statement that the federal government is defending the issuance of benefits to persons and noncitizens without any social security number.

SSA said that representatives play a crucial role in the lives of the beneficiaries. SSA has about 5.7 million representative payees who are managing the annual benefits for about 8 million beneficiaries. When appointing the representative payees, the agency adheres to the guidelines of the Social Security Act.

Specific to the latest audit, the Act permits SSA to appoint an undocumented alien or an applicant who resides outside the United States with no social security numbers in certain circumstances to serve a payee. SSA also mentioned that the Act states that SSA must verify the social security number of a person or the employer identification number while investigating the payee applicant. But the act does not mention that it is mandatory to have social security numbers while serving as a payee.

The agency added that the absence of a social security number is not a criterion that prevents an individual from serving as payee.

Conclusion

It is quite clear that offering social security benefits without social security numbers is a problem that must be addressed but the SSA is taking the matter lightly. It is not accepting that offering $1 billion to people without social security numbers is a shocking social security fact that may shake the trust of people in the system.

 

For more information on Social Security for Federal Employees please visit out content on frequently asked questions about federal retirement or the social security calculator.

Increasing Social Security Payouts by $30,000

A simple social security fact is that most people rely on it to support them each and every month. If you also depend on Social Security then you need to how increasing a simple calculation adjustment could have impacted Social Security Payouts… sometimes resulting in as much as $30,000 of additional income per recipient.  Though increasing Social Security payouts sounds great, the effort is not foolproof and has flaws. So, before you start using the social security calculator to calculate the amount of increased benefits you may get, you should learn the details of the fix here.

Increasing Social Security payoutsIncreasing Social Security payouts

Increasing Social Security Payouts.

As highlighted in a new study conducted by The Senior Citizens League (TSCL), a non-partisan organization that aims to keep retirees and senior citizens abreast of policy decisions that may affect them, increasing Social Security payouts by as much as $30,000 per recipient could have taken place with a very simple adjustment to the Social Security calculation.  The study states that a simple fix had the potential of netting an average retiree in 2015 nearly $30,000 extra in lifetime benefits over 25 years.

The problem highlighted by TSCL is that the method by which the COLAs (cost of living adjustments) are calculated. COLAs are adjustments to Social Security payment made as inflation impacts the value of goods.  COLAs are calculated by considering the changes in the Consumer Price Index for Urban Wage Earners and Clerical Workers which is known as CPI-W. The CPI-W is designed to measure the change in the price of a predetermined basket of services and goods.

When calculating the COLA, the average CPI- W reading from the third quarter of previous year acts as the baseline figure while average CPI-W reading taken from the third quarter of previous year acts as the comparison. If there is a year over year decline in the average CPI-W readings, no COLAs are given. But if there is a year over year increase, the benefits of social security receive the difference which is usually rounded to the nearest 0.1 percent.

TSCL has revealed that CPI-W has a fatal flaw because it is representing the spending habits of working Americans rather than considering the spending habits of senior citizens even despite the fact that two-thirds of all people who get social security are retired.

The Solution

TSCL suggests that a viable solution would be to switch the COLA measure to CPI-E which stands for Consumer Price Index for the Elderly. It considers the spending habits of households with individuals who are either 62 years of age or older than that.

This is good advice because data states that seniors spend more money on some things like medical care as compared to working Americans. Similarly, working Americans spend more on education, entertainment, apparel, and transportation as compared to senior citizens.

If the social security fix suggested by TSCL had been used over the last 25 years and CPI-E was used instead of CPI-W, it could have increased the annual payouts by a beverage of 8.9 percent which comes down to USD 29, 568 in aggregate based on the present average monthly payout of $1,355 that is being given to retired workers.

Over the last 33 years, the CPI-W would have resulted in a greater annual COLA as compared to CPI-E during just three years, 2006, 2009 and 2012. In the remaining 30 years, the CPI-E would have provided a higher COLA which would have let the seniors get more money that could have been used to comfortably afford the constantly increasing cost of medical care. In the last 35 years, medical inflation has outpaced COLA in 33 years.

Flaws of CPI-E

Though TSCL suggests using CPI-E instead of CPI-W to help people get more social security benefits, the CPI-E is also not flawless. CPI-W is more accurate in offering a picture of the spending habits of Americans as CPI- E has too many extra data points for analysis. CPI-E also does not include the increasing costs of Medicare Part A expenses that cover surgeries, long-term skilled nursing care, and in-patient costs. These costs can be extensive, so when they are not considered, seniors could fall way behind the medical care inflation curve,

Finally, calculating COLA by using CPI-E instead of CPI-W could consume the already troubled Social Security Trust even more quickly than currently projected. The pressure on social security will also increase if senior citizens are given more COLA by following the social security fix suggested by TSCL.

Conclusion:

Though it is crystal clear that the social security fix suggested by TSCL is attractive, it is not perfect. Before you start calculating the benefits which you will receive by digging out the social security calculator if CPI-E is used to decide COLA, you should remember that Republicans have been interested in cutting costs and CPI-E would indeed fly in the fact of that. So, we advise you just learn to live with the existing social security facts and don’t hope for better benefits anytime soon.

Making Your FERS Retirement Calculation Easy

Your FERS retirement calculation can be complicated, but it does not have to be. Most of the federal employees calculate their federal retirement annuities before retirement so that they can have a comfortable understanding of their post-retirement income. If you would like the same, then you need to read this article where we will discuss various scenarios that may be pertinent for a federal employee seeking full or early retirement.

fers retirement calculationYour FERS retirement calculation can be complicated, but it does not have to be.

FERS Retirement Calculation and Receiving an Unreduced Annuity

When performing your FERS retirement calculation, whether you are eligible for an unreduced annuity or not, you should be aware that you need to meet one of the following requirements:

  • You should be aged 62 with and have at least five years of service
  • You should be aged 60 with at least 20 years of service
  • You should reach the minimum retirement age (MRA) at least with 30 years or service

What is MRA and How It Works?

While doing FERS retirement calculation, it is vital to know the minimum age requirement or MRA, which ranges from 55 to 57 years of age. It will depend on your year of birth, for instance, if you were born before the year 1948, your MRA would be 55 years of age. In contrast, if you were born in the year 1970 or later, your MRA is 57 years of age.

If you have at least 10 to 30 years of service, then you can also retire at your MRA. But in such a case, your FERS benefit will reduce about 5 percent for each year until you reach 62 years of age. To ensure that you are not penalized, you can delay the receipt of your annuity to a future date.

Retiring Earlier than Expected

When performing their FERS retirement calculation, many people wonder about how they can retire earlier. If you also want to know the same, then you should know that you can potentially retire early without reaching MRA if you are faced with a reduction in force, transfer of function or reorganization. You can also retire early if and when your agency provides you with an opportunity to retire under the Voluntary Early Retirement Authority.

When that happens, your age and service requirements will likely get reduced. You can get the option of retiring when you reach 50 years of age with 20 years of the service or with 25 years of service at any age. In Voluntary Early Retirement Authority cases, the 5 % per annum penalty that is levied for being less than 62 years old is usually waived. So, you get the benefits you deserve from the first day of retirement.

The Vital Formula in FERS Retirement Calculation

All the FERS annuity calculations are based on a very simple formula that lets you estimate the retirement benefits. The estimate would be more accurate if you are nearer to the retirement. The formula is .01 x your high-3 (highest three earning years) multiplied by your years and full months of service. If you are older than 62 years or exactly 62 years of age and have the minimum 20 years of creditable service, then you need to multiply the high-3 with .011 rather than .01.

The product of this simple FERS retirement calculation formula is the basic annuity you will get. If you choose to retire before you reach 62 years of age, you are entitled to a Special Retirement Supplement (SRS) that will come close to the Social Security benefit earned by you while being an FERS employee. To receive the SRS, it is mandatory that you retire after reaching your MRA with 30 years of service or at 60 years of age with 20 years or service or when you are approved to get an early retirement. In the latter case, the SRS will begin only when you reach the MRA.

The Best Solution for SSA

Deciphering the social security component is tough, so you should get an annuity estimate on a yearly basis for many years before retirement so that you can ensure that the records of your work and earning history available with SSA are correct. You are free to sign up for an account at www.ssa.gov as it will give you the liberty of getting a projection whenever you want.

COLAs

Most of the FERS retirees are not entitled to getting cost-of-living adjustments (COLAs) on annuities until they reach 62 years of age. SRS is never increased by COLAs as it ends at age 62. But there are exceptions to the rule. COLAs are added to annuities and SRSs of law enforcement officers, military reserve technicians, air traffic controllers and firefighters. When COLA is payable under the FERS, a full adjustment is paid in cases where the consumer price index figure is 2 percent or less than that. If it is between 2 to 3 percent, 2 percent COLA is paid, and if it is more than 3 percent, the COLA is the CPI figure minus one percentage point.

Conclusion

Understanding your FERS retirement calculation better can help you better calculate the annuity you are owed in retirement.  Although the formula is relatively basic the method and the nuance can be tricky.  It is almost always best to review these topics with a knowledgeable professional who has been trained in Federal Retirement benefits to ensure you receive the maximum retirement benefits possible.

Better TSP Cyber Security Needed

TSP cyber security breaches have been a nightmare for the federal government for several years now and the TSP or Thrift Savings Plan Board, Federal Retirement Thrift Investment Board, is not unfazed by it. But a recent audit report says that the agency is slow at ensuring better cyber security. The Agency became a victim of a cyber attack in 2012, and since then it has not achieved the security it should have. One might wonder, after another such awful incident why wouldn’t the agency take corrective steps?

TSP cyber securityTSP cyber security breaches have been a nightmare for the federal government for several years now

Audit Says Thrift Savings Plan Board Needs Better TSP Cyber Security

A performance audit of the thrift savings plan board was conducted for fiscal 2016. It revealed that the agency is not complying with the metrics laid out by the Homeland Security Department as per the Federal Information Security Modernization Act. All FISMA performance audits usually take in metrics from three entities, the inspector general of the organization, the chief information officer of the organization and its senior privacy official.

Though the thrift savings plan board, FRTIB has reported privacy officer and CIO results many times in the past, it conducted the first FISMA inspector general audit in fiscal 2016. As the agency doesn’t have an internal inspector general, the audit was conducted by an independent auditor, Ernst and Young.

FRTIB Audit Mistakes

In the audit, it was highlighted that the thrift savings plan board, FRTIB has not implemented a personal identification verification program for users. The agency stated that it would implement two-factor authentication for all the users by the end of the next quarter.

The agency has also failed to implement any risk management strategy or procedure that can help in accessing the functionality of the security controls. It has been an ongoing task for the organization as it stated last year that it had several functions of a risk management office in place but not all of them.

The thrift savings plan board also doesn’t have a program that will oversee the systems run by its contractors. It doesn’t even have a formal process to monitor, measure and report the information security performance of the contractors.

Ernst and Young also highlighted that one of the biggest challenges for the board is to develop a program that monitors cyber security. As of the writing of this article, it has yet to finalize a policy in this regard. Continuous monitoring training for the executives is also not there. The executives, managers and IT administrators also need to undergo specialized security awareness and privacy coaching yet as they haven’t even done it once.

The thrift savings plan board also doesn’t have any proper procedures that will ensure seamless communication with DHS in case a cyber incident occurs. There is also a lack of policies to utilize the EINSTEIN program of the department.

Cyber Security Progress

Ernst and Young also acknowledged that the board has made some progress and will continue to do so this year as well. It also recognized that all pertinent information was not mentioned in the 2016 FISMA report.

Wenner Lippner who served as a Principal at Ernst and Young at the board’s meeting held on February 27, 2017, stated that FRTIB has continued to strengthen the posture, management practices and controls regarding information security before and after the audit. E&Y has reviewed only four of 19 FRTIB systems for the 2016 audit.

The Acceptance of TSP Cyber Security Needs

The thrift savings plan board has acknowledged many of its cyber security challenges. It had also studied the best practices of the private sector last year and signaled that cyber security would be a huge project for the agency this year.

Unfortunate Past

It is vital for the agency to fix its cyber security systems if it doesn’t want history to repeat itself. The agency suffered a cyber breach in 2012, and personal information of 123,000 TSP participants was compromised via one of the contractors hired by the agency. At that time, the organization received some flak from the Congress and Labor Department for not having proper security systems in place and not paying attention to the concerns shared by the outside auditors.

TSP Cyber Security Recommendations

The agency is now trying to close the audit recommendations. It closed four out of 12 recommendations during the first quarter of 2017 fiscal. In the previous quarter, it had closed five out of 63 recommendations. To date, the organization has received 165 sub-recommendations from external auditors. The Labor Department has also issued five new recommendations and re-issued another from the previous year.

Executive Opinion

The Executive Director of the TSP or Thrift Savings Plan Board, Federal Retirement Thrift Investment Board, Greg Long has stated that the audit closure rate is not acceptable. The agency has been working through responses to about 35 audits from fiscal 2016 and 2017. It also has 11 more to respond to in fiscal 2017. Long stated that this had been a cause of the significant amount of stress in the organization.

Popular TSP L Funds

TSP L Funds are an important part of your Thrift Savings Plan. Though they have numerous benefits, L Funds are not perfect. They have some side effects as well. In this article, we are exploring various aspects of the TSP L Funds so that you as an investor can make a more informed decision.

TSP L FundsTSP L Funds are an important part of your Thrift Savings Plan.

The Hands-Off Approach of TSP L Funds

When you are investing in the TSP L Funds, it is apparent that you are fine with the hands-off approach. If you as an investor are looking for investments that provide a set-it-and-forget-it approach, then TSP L Funds are likely your go-to option. These are a good option for people who prefer a retirement portfolio does not require a great deal of monitoring or management.

Other Names for TSP L Funds

The TSP L funds are also known as target-date funds or lifecycle funds as they are mutual funds comprising of a group of other mutual funds. These types of funds are designed to gradually reallocate to be more conservatively invested over time, as the investor ages. When the actual target date is reached, TSP L Funds will be mostly invested in bonds with a small amount of portfolio still allocated to stocks to provide an offset against inflation.

An Example of TSP L Funds

TSP L funds are offered inside the Thrift Savings Plan for federal workers. In this example, the federal employee has about three-quarters of their assets invested in three stock funds when the L Fund was issued while the remainder was split between two bond funds. In such a case, the portfolio managers present at Blackrock Capital (the current manager of the TSP L Funds) will reallocate a small portion of the money from stock funds to the bond funds until the target date is reached.

At that time, the fund will have most or three-quarters of the money split between two bond funds while the remainder would be divided into three stock funds to offer some protection against inflation.

Key Benefits

If you like the fact that TSP L funds do not require you to monitor them as much as some other investments, then you will surely like the set it and forget it approach you can adopt while investing. Another benefit of the TSP L funds is that they offer a greater level of diversification as your money will be spread out over multiple mutual funds vs. an investment in any one TSP fund alone.

A Detriment to Lifecycle Funds

Lifecycle funds are traditionally not very tax-efficient. People who purchase these funds outside the IRA or qualified plan may realize capital gains which may lead to more capital gains taxes on a regular basis as shares of the funds that do well in the target date portfolio are sold off and moved into shares of funds that have not done so well. TSP L Funds do not have this challenge, however, as these positions are purchased within the tax-qualified TSP.

The transition from an aggressive portfolio to a conservative portfolio can also vary a lot from one L fund to another. Some may have 70 percent of their portfolios invested in stocks while other funds will have just 30 percent of assets held in similar equity funds at any given time. This difference is a result of the different target date of each fund.

In case you are considering using TSP L funds, you should take a close look at the allocation of an L fund from the same fund family that is already matured or is about to mature. This can assist you to determine whether the target date fund you are looking at will match the risk tolerance at the target date.

L funds can also charge a higher fee as compared to other types of mutual funds as they pass through fees charged by underlying fund options which include the fund and the management fees. Hence, these higher fees can reduce the potential returns over time. Investors who decide to bypass L funds and choose to invest directly in underlying funds can avoid some of these fees, but for that, they will be responsible for manually reallocating the funds to match their changing risk tolerance over time.

Conclusion:

TSP L funds are a good option for people seeking a diverse portfolio with minimal intervention. Although they have higher fees, investors can benefit from the transition from a more aggressive portfolio to a less aggressive portfolio as they age.